Corporate Taxation

Tax policies, including corporate tax loopholes that shelter offshore profits from taxation, or allow for accelerated depreciation write-offs, or permit deductions for the cost of advertising, have lowered the tax burden on American companies relative to average American families and individuals. Companies can avoid taxes in the U.S. by claiming huge losses at home while declaring massive profits abroad. Even though eighty-two percent of Bank of America’s revenue is earned in the United States, the company was recently allowed to claim that all of its profit was made overseas, where it is untouched by U.S. taxes, while it supposedly suffered $7 billion in losses stateside. By rigging its balance sheets this way—a practice that is entirely legal under existing law—BoA was able to avoid billions in tax liability, as did other large corporations. Pfizer, for instance, made more than forty percent of its revenue domestically and had $31 billion in profits overseas in 2011–2012, but declared $7 billion in American losses so as to avoid taxes.153 In all, according to the Wall Street Journal, sixty of the largest corporations in the United States “parked a total of $166 billion offshore” in 2012, thereby protecting more than forty percent of their profits from domestic taxation.

No doubt it is programs and policies like this that help explain why corporate taxes as a share of overall taxes, as a share of national income, and as a share of corporate profits have all declined dramatically. (1) Although financial aristocrats and their media defenders often complain about U.S. corporate taxes being too high—since the thirty-five percent statutory rate is higher than the rate in other industrialized nations—few companies actually pay anywhere near that percentage of their income in taxes, due to generous loopholes, shelters and gimmicks that allow them to substantially reduce their burdens. For instance, the 288 corporations in the Fortune 500 that were consistently profitable from 2008 to 2012 ultimately paid taxes at a rate that was only 19.4 percent of their income over that period, with one-third of these paying less than a ten percent rate. Twenty-six companies, including Boeing, General Electric and Verizon, paid no federal income tax at all over that five-year period, and roughly forty percent of the companies that remained profitable from 2008 to 2012 had at least one year during which they paid no taxes.

Corporate Taxation, and a direct refutation of the common argument that corporations are overtaxed. Normally that would provide a difficult stopping point. But this new information is absolutely critical and godlike for demonstrating that in a substantive, meaningful sense, no, our corporations are not overtaxed.

No matter how one examines the data, there is simply no doubt that the tax picture for U.S. corporations is an increasingly rosy one. Whether examined as a share of the economy, (2) as a share of all income taxes (3) or as a share of all federal tax revenue, corporate taxes are at historic lows. Today, corporations are contributing only about one-fifth as much of overall federal revenue as they did in the mid-1940s. (3) Finally, in 2012 corporate taxes fell to only 12.1 percent of profits, the lowest level since 1972, and about half the norm that held from the late 1980s until the economic collapse in 2008.(4)